How to track your spending (and why you should)

Recently, an old friend emailed me for help with his family’s financial woes. The confession that followed wasn’t pretty, and included tales of student loans, car loans, unrestrained spending, and empty bank accounts. It was all bad news, which I found rather surprising considering their relatively high income. So, of course, I asked about their fixed expenses. What were they?

We emailed back and forth for quite a while, and he gave a few more details of their situation. For example, their house payment was only around $900. Affordable. Car payments and student loans consumed around $450 each month. Not shocking. Then there were the expenses that everyone must contend with — things like groceries, gas, school supplies, and insurance. It was all rather boring.

Follow the money trail

So, what was the problem? This is a couple who easily pulls in six figures and lives in an incredibly affordable part of the country. Their fixed expenses were relatively low, but they were constantly coming up short on funds. Why? Obviously, something was going on, but they couldn’t put their finger on it. And neither could I.

“You guys should track your spending,” I suggested. “That’s the only way to see what you’re spending your extra money on.”

He agreed, and I said that I would check back with them in 30 days. So I waited, and waited, and waited. A month later, I emailed to see what they had discovered.

“The kids are always needing something,” he said. “And we hate staying home on the weekends. We want to go out and have fun.”

“But you’ll never know where your money is really going unless you track it,” I said. “Maybe you can just start over at the beginning of the month.”

“I guess we don’t really want to know,” he said.

It’s hard to argue with that.

Sometimes the truth can hurt

Although he didn’t give any more details, I think it’s pretty clear what happened. They started tracking their spending and were totally appalled at what they found.I’ve been there. When my husband and I started tracking our spending years ago, we discovered that we were spending over $1,000 on food each month … for two adults and a baby! And that was on top of the other ridiculous ways we were wasting our money. My friend was right; it was depressing.

But, unlike my friend and his family, the severity of our situation actually forced us to change. Tracking our spending made us take a hard look at ourselves and what we really wanted out of life. And we didn’t see our failure as a prison sentence; we saw it as a call to action. We used the information we gleaned from tracking our expenses to transform our lives, pay off debt, and completely redesign our future.

But my friend and his family just can’t do that right now, and that’s okay. The truth is, they’re not ready yet. It seems like most people need to hit rock bottom before they feel compelled to take drastic action. And, one thing I’ve learned over the years is that you can’t make people change. They have to want it. They have to take it for themselves. And until that moment comes, you just have to watch helplessly from the sidelines.

My friend’s situation is tragic, but it doesn’t have to be forever. I’m sure that he and his family will eventually tire of their situation again at some point and hopefully try again.

But what about you? If you want to get in touch with the reality of your own situation, tracking your real spending is an excellent way to do just that. Sure, you may think you’re only spending X number of dollars on your hobbies, groceries, and transportation costs, but are you? Track your spending and you’ll know for sure. Here’s how:

Commit to the cause — Before you get started, you need to commit to your own cause. Because if you don’t, no one is going to do it for you. Tracking your spending can be an eye-opening experience, but it’s one that won’t work without the full cooperation of your family members. In other words, don’t do it halfheartedly. Remember, you have to want it.

Keep receipts — You’re probably going to hate what I’m saying, but you really need to keep receipts for all of your purchases for an entire 30-day period. This can be quite a hassle, especially if you’re not used to doing it. However, it’s an essential part of the process. Embrace it.

Track your spending online — In addition to keeping track of all those receipts, you’ll also need to keep track of your online spending. This can include bills that are paid online, online shopping, and even credit- and debit-card transactions. The goal is to get a clear picture of all of your spending, so it’s important to include every single transaction you make during the entire 30 days.

Tally everything up — Once you’ve gathered your receipts and online transactions in one place, it’s time to tally them up. Start by lumping similar purchases into categories that make sense. Your categories will vary depending on your specific situation; but they’ll probably include things like groceries, restaurants, gas, clothes, medical bills, hobbies, and home maintenance.

Be honest with yourself — If you track your spending for the full 30 days and are shocked by the results, try not to make excuses for your behavior. Remember why you started tracking your expenses in the first place and try to learn something from the experience. If you don’t, you’re just resigning yourself to the life you’ve been living up to now. Remember where that road leads. Nowhere.

On the other hand, you can’t change what you refuse to recognize. You can’t tackle a problem that you don’t even understand. Tracking your spending will probably be the most painful part of your journey. Likewise, it’s the most important. Because when you see your own spending on paper — in black and white — you can no longer blame the kids or your busy schedule. You can’t complain that you “just need a raise,” or point to high taxes, the government, or anything else as the source of your woes.

We often create our own prison cells, either out of habit or laziness or because we fail to plan. And when we do, it’s easy to blame everyone else and think that escape is impossible. And that’s why tracking your spending is a crucial piece of the puzzle: It forces you to come face to face with the biggest threat to your financial future.

You.

Have you ever tracked your spending? Did it change your life?

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Hey Holly,
Nice read. I agree. I am in a situation where I need to take immediate action with my finance. I have tried to track my finances before but as you rightly said, it’s depressing. Again the fire has light up in me to track my expenses and hopefully I will be able to achieve my goals this time.

Best regards,
Rajat Sinha

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John

It totally changed my life. Going through that one step became the springboard to taking more steps and now I’m in the best financial shape of my life

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Nina

YNAB user here. I wish personal finance was taught in school. It’s only been a year since I started taking it seriously as money was always considered boring and difficult. Looking back a few years ago I owned a house together with my then boyfriend and I just let him handle everything. Today I live by myself, renting a little apartment, and I know exactly how my finances look and where I am headed.

I grew up with a mix of frugality, as my mom didn’t have much money, but my dad would spoil us with material gifts. The frugality has been my redemption as I’d naturally never spent much, although it can become a negative when I would not buy myself things that should be considered needs. While I am lucky that my family saved money for me, and with my mom and grandparents passing away I have some inheritance, it pains me a little to know that for years this money just sat on a low interest savings account. I also only last year started to save for retirement, missing out on years of tax reduction and higher interests. Still, I am glad I changed when I did. And it is quite possible that if personal finance was taught in school I’d not have listened, as young people are sometimes prone to thinking they know best. I do know however that if I were to have kids, I’d teach them financial responsibility. Not that I hold it against my parents, they did their best with what they had and knew, but I’d like for my own children to have at least a good example. Then as they grow up it will be up to them to see what they do with that.

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zac

I have been tracking my spending for some time but have been doing it more thoroughly for about a year. It has been an amazing tool for learning about my finances. I find that it is helpful to have, or design, a spreadsheet that will give you projected averages. That way you can see what trajectory your spending is on in a given category. It’s also super helpful to demonstrate what is happening to others who are involved with you finances, ie: spouses.
I just use excel but have found that I actually enjoy tracking now. You have so many tools that you can create and it all helps you to plan for the future.
I’m also a big advocate of annual budgeting. It allows for a more comprehensive view of your finances. It evens out the spikes that those irregular expenses create which can be really frustrating to deal with when you are trying to learn about your own spending habits.

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Kathy Fernandez

Very good post. I absolutely appreciate this website. Stick with it!

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zac

I started tracking my spending a little over a year ago. It truely is the most important step in personal finance in my opinion. It is so important for so many reasons. In particular it helped me communicate with my wife. When the numbers are right there and you can BOTH see them you can BOTH work together and come up with goals.
I tracked for a year on excel. I found it useful to create projected averages and current averages. That way not only can you see what you’ve been doing but what trajectory your on.
To be honest I got a little addicted to keeping track of things. I have many spreadsheets now now that all help me get a good picture of what my finances look like.

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kpsetdec

We track all of our bills and monthly expenses with Quicken and gave ourselves a weekly cash allowance to cover what we thought our day to day expenses would be each week. That was fine for a while but it wasn’t always clear where all that cash went. I found a great app called XpenseTrkr. You can divide it into logs – I do a monthly log- and each time I purchase something I get out my phone and enter it. Then I created an excel spreadsheet with the different categories I’d chosen. At the end of every month I enter the amount I spent in each category. It’s been a huge eye opener. It took a bit to get in the habit but Ive been doing this since 2011 and now its just automatic. I purchase and I enter. It’s really great to track all our bills with Quicken and then know exactly where every penny goes outside of the bill paying realm. It’s also really helped me with my taxes. I was spending money on deductible things and hadn’t been tracking them until I started using the app.

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Teinegurl

3 years ago after a year of being divorced and me just starting a new job I started to track my expenses. Literally I had no clue what to do because i always left the finances up to my (ex) husband. Suddenly all the finances was left up to me and for the first year I had no idea what to do.

I started this new job i asked my coworker for help -How come i keep paying the bank fees and running out of money? She told me well when was your cell bill due? Car ? Cable? How much was it? To all of this i didnt know. She helped me created a Excel spreadsheet and told me for 30 days every time you spend money get a receipt and keep track of it here so i did. Even if was just $1 I kept track of it. After the 30 days was up i was shocked but i liked it so much i continued it on i figured i’ll stop once i know longer want to do it anymore. That was 3 years ago. I love being able to go back and see how much i paid for something and compare.

It was the best thing I did to help my finances.

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Even Steven

I used to only look at the ATM or use my online banking. My thought was if i had enough money in the bank who needs to keep track of spending.

Like many people I wasn’t getting anywhere, I then started making budgets and spreadsheets and finding where everything was going and how I could save some money. Get Rich Slowly and Dave Ramsey helped wake me up in this process, I’m financially better off for it today.

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leo r.

I started working outside of my home country for 1 year and 2 month now. And since my first day here up to last night, i’m still writing my daily expenses and it really helps me a lot in evaluating my financial status and decisions in the future.

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Amy

I used to constantly run out of money about a week before payday.

I tried online programs to track my spending, but I found that writing down every single expenditure in a notebook helped the most.

I gave myself an approximate budget in my variable spending areas (groceries, “coffee”, utilities, pet food and care, hair care, baby expenses, and “fun money”). Fixed expenses like rent, baby’s day care, emergency fund, and savings are on automatic for debiting or transfer to another account.

The first month or two, I went over budget – mainly due to purchases on clothes or other “wants”. Now that I have to write down every expense, I found that I’m more mindful of my spending. I am also conscious if I end up having a no-spend day – which makes a big difference! For the last two months, I’ve been within budget and I can see an impact on my savings.

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No Nonsense Landlord

I use Quicken, track ever receipt. Then reconcile every statement.

I am surprised at how many people never want a receipt from a purchase, not even a bank deposit.

You have to know what you are spending!

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Laura

So many people nowadays do NOT want receipts that I find it difficult to get businesses to provide them to me! I can’t count how many times I’ve made a purchase, only to have the clerk grab the receipt and toss it immediately in the trash. I then hold up the line while they either root through the trash to find my receipt or stop to print another one.

And yes, all my receipts for cash purchases, once logged into my spreadsheet, are recycled, not thrown into a landfill in a plastic bag.

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Carla

If anything you may need to do a return or an exchange. Yesterday my DH was paying for a few items of clothing at the department store for me. When the clerk asked if he wanted a receipt, he said no and I said yes.

We talked about the importance for me to have the receipts for such purchases, not only for budgeting, but in case I need to take an item back.

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Asif

I never tracked my spending, only how much I made and how much I had left in the bank. My savings rate was leftover/income. Since Nov’13, I started using a free android app, Toshl and I figured how much I have been wasting on eating out… I live in a developing country and can’t track bank accounts over the internet, so Mint/Quicken are not an option here. With Toshl I need to input all the spending every day, but its rewarding to know where my hard earned pennies are going 🙂

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Crystal

I tracked my spending for one month and although I consider myself to be pretty good with my financials, it allowed me to see where I could cut back and send extra money to pay off my last student loan.

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Marie

Tracking our spending was depressing not because we were being wasteful, but because we realized how much of our money was being sucked up by stuff that was NO FUN WHATSOEVER. Constant car problems, big medical deductibles, home repair…I almost prefer thinking I was wasting my money on leisure. At least then I felt happy and pampered.

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Laura

You and me both! I’ve tracked our spending religiously for about 13 years, but still struggle to stay out of the red for this very reason. I’m not buying too many lattes; I get walloped by repair bills. And we’re paying too much of our income for the mortgage, but moving is not an option.

But keeping a spending record still helps a lot. If nothing else, it helps justify when certain purchases just cannot be made (e.g., refusing to buy the new car that DH wanted until it was clear the cost of repairing the old one exceeded what a monthly payment would be).

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Ash

I also use YNAB and absolutely love it! I am now debt free, have a lot I money in savings, and I’m happy with my financial life. Ignoring kept us in debt for so long. It’s hard at first, but becomes much easier over time.

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cathleen

I’ve been using Quicken for 20 years or so.

I also owned a business and used QuickBooks; knowing where your money goes is critical or your business won’t survive.

We use debit cards for everything (and credit cards for online purchases) and Quicken learns your categories quickly so you don’t need to spend time doing that. You can correct or change as needed, which happens rarely for me.

Also, critical for me is seeing cash flow. I can see 3 months ahead in the register based on my income / expense plans and if I see red I can make adjustments to my spending etc. until it balances out.

Another benefit is that I can look up in a few seconds any purchase, or bill that I’m looking for, even more valuable for me than the tracking feature. Reports can show spending over time with Summary and Detailed views.

Best method I’ve ever used.

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Eva

This post cannot be posted on a better time than today. Yesterday, while I couldn’t sleep, I suddenly wonder why am I saving less than 10% of my income. I jolt down all the necessity (rent/mortgage, insurance…etc) but the total still doesn’t add up. I used MINT constantly, but if anyone has use it, their categories truly sucks (for one, I don’t have kids, but have elderly to take care? – where is that?!). And while they have overview and such, they don’t have month to month or year to year, for me to understand what is truly happening to my income vs expenses.

I read the comments above, and I think different people just have different methods and I have yet to find out mine. Doing “all-cash” never works for me, b/c at the end of the week, I have no idea where my money went. I tried budget spreadsheet or even noted down everything I brought/purchase in Excel…and then I gave up.

Using credit cards help me a lot, not only it give me ability to track it on MINT (even as crappy the categories could be) but it also protect you from the product you are buying. Most of mine have extend warranted that you don’t have with Cash, also it comes with rewards, rather I can get status for hotel/airline to miles that I can redeem for my next trip. These things add up. Cash limited yourself, but rather if it is cash or credit card, I think it all lies within us on how we want to buy certain things or service.

I don’t know where to start or what would help me but I guess the best thing to do is figure out what I have spend in the past year 🙂 Wish me luck 🙂

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Stephanie @ Six Figures Under

Eva, I was having the same problems and frustrations with Mint. I wrote about it and the wonderful solution I found. (I don’t know if posting links here is taboo, so you can click on my name to get to it). Hope that helps.

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Jason

I use Mint to track all my spending. It ties to my accounts, cards. And I’ve been doing it for a while now. I saw bad spending but until I broke up with someone who didn’t want to change their habits it was hard to fix. Now I follow a budget and often come in under budget, saving any excess. And I’ve cleared away some small debts that had started adding up. And I feel so much better and on top of things. I know where every dollar goes and even track when and where I spend cash.

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Catarina

+1 using YNAB to track and plan expenses here. I also think it was the best money I’ve spent in years!

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abc

I view tracking expenses as a life time activity. Something you learn from your parents and teach your children. When I was a kid, about once a month my Dad would bring a calculator home and do the family’s books. By the way, the calculator was not even electric; it had a crank on the side that you pulled down to do the calculation. From observing him, I just assumed that it was common sense to track your expenses and to know where your money was spent. So, over the years, I did my expenses with pencil and paper, and when computers became available with various software applications. I have used Quicken for over 20 years and have enjoyed how with time the tracking has become easier. When the kids left the house, they all knew the importance of tracking expenses. My three kids are all doing well and track their expenses. I only know this because we let each other know when there is a good buy available on a new Quicken version.

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Saver_Dude

All these apps and websites to help you track your spending are still too frilly. They don’t address the mechanical / physical reasons for overspending.

A few easy steps.

1. For one month disable automatic bill payments. Having companies take money out of your account before you can see what they are charging you for is like being conned! Don’t mistake CONVENIENCE with CONTRIVANCE. Have the bills mailed to you or print them out each month and sit down for one minute to scrutinize each charge.

2. Cancel memberships, donations and subscriptions to things that you don’t make full use of. The gym, the pool, 3 newspapers, 4 magazines, lawn service, 500 cable channels, netflix, $50 per month to XYZ charity…. do you really need to pay for ALL these things each month?

3. Take out CA$H for your week’s spending money. Don’t use your debit card or credit card for minor purchases, it is too easy to swipe swipe swipe. When you run out of cash, you’re done for the week. 🙂

4. Plan out grocery shopping for one day of the week, and before that day write down a list of ingredients for meals you plan on eating. This will steer you towards fresher, cheaper produce and away from more expensive prepared foods. This will also help you to avoid waste and not driving to the grocery store 3 days per week for candy, soda and junk food.

5. Only take one debit /credit card with you where ever you go so you can download your purchases at the end of the month. Leave all other cards at home. If using a credit card, immediately pay off the balances or promptly within the grace period.

6. Don’t go to the store unless you absolutely have to!! When I was still living at my parent’s house, at least twice a week they would drive to Walmart just to make a trip out of it with the whole family! They didn’t need anything, they would just go to Walmart to buy stuff out of boredom…needless to say we always left the store a few dollars lighter…like forty or sixty and sometimes one hundred.

7. Think about opening a free savings account that is restricted. I have a savings account where I cannot take out money unless I physically go to the bank and ask them to take it out. (i.e. no debit or credit cards) This makes it much more difficult to buy on impulse, but if a major unforeseen expense comes up, it only takes one hour.

8. Practice a general disdain for parting with your hard earned cash, and laugh at those who think being thrifty is wrong.

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Yankeegal

Lots of good advice here. I was that person at Walmart spending way too much. A little planning and a once a month trip has cut that expense dramatically!

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Rail

Saver Dude is right on the money!(Ha ha!) Being on automatic pilot for so many things in life like bill paying, auto deposit, auto withdrawl, etc. can make you complacent. It may be the cynic in me, but if banks and businesses are beating the drum for “automatic this and that” then be very wary of what is really going on.

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Brandon

Great post! Me and my wife a few years ago got on a budget and it was one of our best decisions. We found mint which really triggered our desire to start living on a budget. We too were shocked at what we spent on food! Mint.com is a great free resource that can help with starting a budget. I have found it is a day to day battle and will to remain on a budget. Consistency is key !

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Jeanne

I didn’t start by tracking spending by categories. 10 years ago, when I was deeply in debt, I was getting overdraft fees every month. So, I started an excel sheet to track every ATM advance, bill payment, check card and credit card purchase to see how much I was expecting to spend on different things over the next month, so I could see if I needed to move money from savings, or maybe wait on buying something until after the next paycheck.

After I had been doing that a while, I decided to see what the money was going to, so I set up a system, also in Excel, because I refuse to pay for something I can do myself.

I still put data in the first one every day, because I want to make sure that there’s enough for the month. I only track the second every 3 months or so, now that I’m on target.

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phoenix1920

I find tracking too depressing–because it’s too time consuming! I don’t have a smart phone because I don’t really have a need for one. While smart phone apps like Mint seem to be helpful, it seems odd to me to spend $50-60 a month for a smart phone plan (i.e., $600-720 a year) so I can track my financial expenses. So I keep my receipts, which accumulate in a basket until it’s overflowing and then I feel overwhelmed.

While so many people give advice like “use Mint,” I just haven’t found a way to reliably incorporate this into my daily life. In fact, in today’s world, it becomes easier and easier to disengage with finances. All bills can be autopaid, savings is automatically taken out, and if you don’t have financial shortages, there is no “house-on-fire” incentive to track finances.

It would be great to read some articles or tips about how to create a tracking habit.

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Rail

Phoenix see my post above. Put your PHYSICAL check in the bank. PHYSICALY write out checks to pay bills. Use “real” money. It might not get you there 100% but its a start. I don’t have a smart phone and I can barely use a computer but if I can save money without them you can too! Russel Means said something like “The modern world has made the normal, abnormal. And the abnormal, normal.” Don’t listen to the TV telling you how easy it is to “just let us take care of you”. Take care of your money all by your lonesome, with the assistance of a small local bank if you have one. Good luck!

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nicoleandmaggie

Mint isn’t just a smart phone app. I don’t have a smart phone and we use it from the regular computer.

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Matthew

The best way to track your spending is to Outsource it. Less mistakes and also the cold hard truth, that you cant try to change. MINT.com. Saved my finances.

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redstar

I just did a check-in on our spending yesterday. It can be a serious wake-up call. Like a thousand cuts at your budget that go unnoticed til you run out of $ before the month is done..still working on our biggest variable category: food, since we are foodies, but we have learned to max our Roth contributions ( we thought we couldn’t do it, but guessing can be a deadly step to retirement, would NOT recommend!!!) . Still don’t like seeing the tax bill at tax time, but I can see where there’s hidden money in your budget if you are more conscious of it!!! Tracking your spending is essential to financial wealth-building… Seriously!

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Tina

I use Mint and have for about a year. It has been really great. Food expenses are our spending weakness too so when food budget gets close to exceeding, I can scale it back just by cooking stuff that is in the freezer already or have cereal night to finish off the close to expired milk.

Recently, I sat down with my family(hubby and 2 teens) and explained if we want to take a nice vacation, we need to stop eating out and stick to meals at home. Everyone is ok with this and already have most of the money saved up for our vacation.

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Jenn

It can be depressing to see where your money actually goes, but it’s well worth it to plug those holes. It can also open your eyes to problems that you never would have guessed. As an example, my credit card (Slate from Chase) uses their Blueprint service to help you track your money and categorize your spending. While I normally take a more active role and track every penny myself, I realized that I had been missing a huge forest by focusing on trees! What I’d thought was “standard maintenance” on my car and therefore fully justified turned out to be a sign that my car was on it’s way out and was starting to cost me much more to maintain that it was worth. When it finally hit the breaking point I had luckily realized that there was more value in selling it for scrap than replacing it.
And right now my husband and I are trying to figure out the leak in our budget (we should be able to save $1000/month, we’re lucky to save >$100), which we’ve again been doing by scrutinizing every tree…time to sit down and look at the forests and see what we find. Thanks for the reminder!

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Tracy

I recently started tracking my spending and saving in a spreadsheet and it has definitely change the way that I spend. My fiancee and I now go out to eat half as much and I am much more scrupulous in my purchases knowing that I am going to have to track them afterward.

One thing I haven’t quite figured out yet is how to track my credit card spending/payment without it being figured in twice (and still showing which categories I spend on) but I’m sure I’ll think of something!

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Rail

Tracy. You might have to track your C.C. spending in a analog method(pencil/paper) just like us old farts! Lol! Have fun.

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Eric Duminil

You might want to take a look at http://www.grisbi.org/
It’s a great open-source program to track spending. It covers all my needs.

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Tracy

That looks great, I’ll check it out.

I think I may also just mess with the formulas in my spreadsheet. I host it on googledocs so I can access it on my phone (or from anywhere) which I really like.

Much like JD, I just got rid of my consumer debt and have reformed my spending, and thus just got a great new rewards card that I want to use on as many purchases as possible (to get as many rewards as possible). But my plan is to pay off whatever I spent that week on Sunday, so that I won’t build up a balance and my checking account will accurately reflect my spending.

So I may just continue tracking things in categories, and just pretend that the charges were on my debit card (and thus came out of my checking account immediately). We’ll see.

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Laura

Tracy – I don’t know if this will work for you, but what I do is to have my spreadsheet divided into roughly two parts: income and outgo. I put credit card charges in both places. Under “income” I have two rows for my two credit cards: what I spent in Week 1, 2, 3, 4, and total (SUM 1,2,3,4). When I charge something (in my case, either heating oil, car repairs, or an online purchase such as a present), the amount is listed as income in the appropriate cell and again as outgo in the appropriate spending category cell. So if I used my card to pay for heating oil (note: not due to irresponsibility but because that’s how I pay it online, then paying the c.c. bill from my checking) and it’s $600, I note $600 under income from X credit card and $600 under outgo for heating oil. This also allows me to see as the month progresses how much is going on my c.c. One outgo category is, of course, the c.c. payment. If I am not incurring debt, the total of items purchased via c.c. = total of charges made = total of c.c. payment. Hope this helps.

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Waverly

I feel bad for the kids. The parents are willfully looking the other way, because to find out the true depth of the hole they’re digging for themselves is depressing. I get that. But the kids don’t really have a choice in the matter. They basically are at the mercy of their parents’ crappy choices. On top of that, when you’re a kid, you tend to think of whatever your parents do as “normal.” So the kids are going to think that having $0 in savings, having no plan, having no retirement fund, having no emergency fund, etc, is normal.

The cycle continues.

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phoenix1920

Very, very few kids know their parents finances, how much the parents have in savings, what the parents’ retirement plan is, or even what their annual salaries are. My husband learned this first hand when he gave high school students a spreadsheet project requiring them to create a balanced budget and the students were required to talk over their budget with their parents to ensure it was realistic. Talk about receiving complaints!

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Waverly

That’s true, although my mother was always talking to me about money and finance. Not in detail, as in, how much money she and my dad made, but in general. For example: you must pay every bill on time, you must save more than you spend if you want to get ahead, you must save, period. You must give some money away. If you want to buy things that cost more than you can afford with just your allowance, then you must get an after-school job.

If kids hear this kind of stuff, even without knowing the details, it’ll help prepare them for dealing with money once they have their own.

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Jenny

I couldn’t agree more! They shouldn’t be hauled over the coals for past mistakes, but choosing to remain wilfully blind is not the mature path to take. For the kids’ sake, I hope this couple reconsiders their priorities, and soon.

I have to take issue with one comment in the post: “My friend’s situation is tragic”. No, it really, really isn’t. It’s unfortunate, yes. It’s also probably quite easily solveable, with a little fortitude and effort. But it is decidedly not tragic, and describing it as such is demeaning to those who find themselves dealing wiht a true tragedy.

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Martin

I use mint, and I’m very happy with it.
It seems to give me the clearest picture of my spending with a minimum amount of my time catagorizing.
All transactions from all sources (debit card, and automated recurring charges are pretty much all the transactions I have. Plus some misc checks. )
I don’t use cash generally. Mainly so all of my transactions are captures by mint.
Really helped me see where the $ was going,

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Rail

Greetings all! This is a good post that really harkens back to the bedrock of GRS. Ever since I found GRS and then was turned on to Dave Ramsey I felt like I had been vindicated for being called a tightwad all my life. Controlling expenses is the biggest part of GRS, you could make 10 Gazillion bucks a year but if you spend 11 Gazillion your still in the hole-broke, busted, kaput!
For a old timer like me (44yrs.) who came along before computers, using cash and checks was just how things were done for paying day to day expenses and bills. Since I had a crappy low paying job(s) credit cards were out of the question and I didn’t have one until I was about 27. Since I was raised to live frugal and was doing so out of necessity watching out for spending has always been a priority. So, here we are, 2014 and this is my system. I have bills sent to my house by U.S. Mail and I sit down and write checks to pay them, keeping credits and debits in the checkbook. When I go to the bank and cash my paycheck (no direct deposit) I put money in checking, savings and get cash from the teller. I also get current balances from the bank to check my own record keeping. I use cash for day to day purchases and keep receipts for many things for tax write off purposes. Using cash also gives me the “Pain” of seeing the money float out of hand and gives a visual of what is going on (Grandpa and Dave Ramsey must of been brothers!) I have a cash card and credit cards and when I get cash out of checking I write it down in the checkbook and if I use the credit card I keep receipts until its paid at end of month or for tax purposes. You can tell I don’t use a C.C. that often and cash is king with me. I guess using real money(Well, Fed. reserve notes.) works for me and helps me keep a true daily visual on what I’m spending. It might not be for everyone and I know a lot of people laugh at me for using cash and checks and not being computerized, but what the hell. So if you want to try my system get yourself a checkbook, a calendar, a shoebox or folder and some pens and pencils. There you go. Have Fun!

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Laura

(Late to replying to this article, thanks to a hectic week that kept me off reading blogs…)

At 51, I’m another old-timer so I get where you’re coming from and I also prefer cash where possible. I confess that I REALLY like direct deposit (which also waives the fee on my checking account) and online bill paying (although I always go in and do it manually, no automatic stuff). But only the mortgage and utilities get paid online; gas, groceries, and the rest get paid in cash.

Since I started tracking my spending in 2001, I use an Excel spreadsheet modeled after the one in Jerrold Mundis’s book, “How to Get Out of Debt, Stay Out of Debt, and Live Prosperously.” That works for me.

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Wyoming Gal

We use a credit card to pay for all variable expenses – such as gasoline, travel expenses, food, gifts and household supplies. Of course, we pay the balance every month before the due date. I tally all expenses by category from the credit card bill – usually once a week or so – and of course I budget the amount to pay off the balance weeks in advance. This works well when my husband is working away from home for several weeks. I know what he is spending as well as what I am spending. We spend very little cash – less than $100 a month. I pay most recurring bills through online bill pay.
I find it fascinating that people don’t know where they spend their money. I would say I know within a few dollars at any given time.

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John Schneider

It wasn’t until we categorized our spending for the previous year that we realized that we make decent money. It was our spending habits that were ruining us. Ever since then, we’ve tracked our spending religiously. Every pay day, twice a month, we update our cash flow and itemize our spending. This helped us pay off our debt and start investing. Great article and important points!

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David S.

I actually feel bad for the family. I don’t know why, but I love numbers (I am a Software Engineer). I actually enjoy categorizing the receipts down to the sales tax, reading IRS publications with my browser pointed to the Tax Code, running different calculators to plot different retirement scenarios, etc. Luckily the wife is on-board too and like to see the pretty graphs and doesn’t mind entering a receipt every once and awhile.

Anyway, as for the family. As we have in software, you cannot know if you have a completed design/app unless you have measurements to say so. The more refined the measurements, the greater the certainty that you have achieved what you set out to do. Tracking your expenses is a major measurement of your financial life. Without that measurement you really cannot make the adjustments that affect other measurements (investment/savings account balances, no debt balances, etc.) If he wants to improve his financial picture, he’ll need to track where the money is going.

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Julie

I feel bad for them as well, mainly because of this statement “And we hate staying home on the weekends. We want to go out and have fun.”

Why is it necessary to spend a lot of money to have fun? Beyond that, how is being broke “fun”?

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getagrip

This is the real reason they not only aren’t ready but they won’t make any kind of change in their lives until something smacks them square in the face. If no absolute crisis appears, they may never learn.

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Stace

I’ve had and used mint for a long time, but don’t look at it regularly. I just found that there were some times in my situation when it didn’t really work for me…I live with my fiance and we split bills, but I tend to put things on my credit card and he will give me the cash.

When I do look at it, I tend to look at the big trends: am I hitting my savings goals, on average, throughout the past months/year? Is my net worth increasing? I have pretty lofty savings goals (half of my take home pay). So I try not to be too hard on myself if there’s a short time where I’m not meeting the goals, say right after a big vacation, and just try to catch up.

The only categories I tend to look at if I’m going over too much are shopping (I’ll go through bursts of shopping sprees, followed by nothing for months) and food (we like to eat out).

Now that we’re saving for a wedding, I will be tracking my expenses a lot more closely. Is it depressing? Sometimes. Will I do it forever? Probably not. But sometimes you have to do it to clue in to where you can make changes.

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Aldo @ MDN

Tracking my spending was what saved me. I always thought I could just keep track in my head but after I started writing everything down I realized how wrong I was. I’ve been able to save so much money after I started tracking my spending.
My girlfriend says I go overboard because I have so many different spreadsheets and apps tracking the same thing. I’m just trying to figure out what works best for me. So far I narrowed it down to two spreadsheets, which I keep on google drive and can access it from my house and work, and one mobile phone app. I haven’t tried the paid budgeting software yet but maybe I’ll give a few of them a try.
Online banking also makes keeping track so much easier.

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freebird

When I turned 18 and left home, I did this because my parents suggested it, but after a few months I realized all this recordkeeping wasn’t necessary because I’m a low spender by nature. Three decades later I still don’t have a budget and I don’t believe I need one. What probably would make a difference is tracking my investment allocation, which I don’t do for the same reasons you list (mainly laziness). I can probably squeeze out an extra couple months wages per year with a properly tuned portfolio.

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Jeff A.

This article is well timed.

I used to track my spending religiously (every purchase from about 2006-2009). Then I stopped.

Last year I took a new job at about a 25% paycut, and I’m still struggling and frustrated that the numbers aren’t working out the way I need them to. Time to get back on this. Sigh.

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El Nerdo

Tracking is a great eye-opener, and good to do periodically, but tracking all the time can be a real pain. The truth is precious, and it shall set you free, but too much bean counting can drive you bananas.

Tools like Mint or YNAB might be great in concept, but all the default categories are ultimately meaningless . E.g., “shopping”. What does it mean? Shopping for what? So you have to customize for your life. And then the mixed receipts, like when you go to a big store and buy 7 or 8 categories in one receipt (auto, clothing, groceries, household, entertainment, medical, pets, gifts,) and have to split them. Those are a true horror and happen too often. Went to the gas station, filled up and got a sandwich (vehicle–fuel, eating out?).

In the end, you only need 3 categories: needs, wants, savings.

Sounds like Holly’s friends are spending too much on wants and nothing on savings. That’s all they really need to understand.

Pay out savings and (fixed) needs first, and what’s left is play money– do what you want with it.

In the end, once you fix the proportion of those 3 categories (e.g. the classic 50/30/20, or whatever) you can forget about bean-counting until something changes.

I’ve spent whole Saturday afternoons matching receipts and figuring out every penny, and eventually it becomes torture. As long as your fixed needs are low enough an your saving is consistent, what does it matter if you spend all your want money on trips or on computer games or on restaurants and the opera?

I’m all for the 30-day tracking. Longer, even. I did it for over a year and it ate huge portions of my free time. But later on, St. Elizabeth Warren (all praise to her! ha ha ha…) showed me I could simplify the accounting and save precious time and energy, as well as money.

Maybe the friend needs to realize that counting doesn’t need to be a perpetual chore– just like you don’t need X-rays on a daily basis.

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Holly@ClubThrifty

That’s exactly why I lump all grocery spending into my grocery category (even if it’s light bulbs or toilet paper), and put all other spending in miscellaneous. I don’t have the will or desire to keep track of every individual purchase!

We did at the beginning though, and it was helpful at the time. But, over time, it made sense to loosen the reins a little bit.

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El Nerdo

Hi Holly,

Right, relaxing after a careful inspection is good (and careful inspections are essential), but “miscellaneous” is precisely one of those categories that used to drive me nuts. It’s the one that makes least sense. It just tells me I can’t make sense of the expense.

What I really need to know with my expenses, is this:
a) is this something I am committed to pay, or need for survival, and that I’d have to pay for even if I lost my job tomorrow? Or:
b) Is this something I’m spending to enjoy my life, out of choice, to make things better, becuz I wanna?

Those are the only categories that ultimately matter in my budget, in addition to savings, because they correlate to meaningful economic choices and scenarios. “Miscellaneous” has no real correlate: it can be an unrecognized need, or payment on a personal debt, or a random want, but the label doesn’t tell me anything about that.

We assign these days $100 per person for basic food and household stuff (I used to believe you needed more, the USDA allots $200/person for food alone, but last summer I figured out a true barebones budget & methodology for us, too long to describe here, so that’s it).

Our grocery expenditures are regularly much more than that, but that’s from the wants budget– real Parmesan is a want, Irish butter is a want, organic eggs are a want vs. regular eggs, organic kale is a want vs. conventional frozen spinach, beef and limes at today’s prices are a want, etc.

However, we don’t count it that way. We just count $100/person as our “food needs” budget, but spend it together with the wants, knowing that in case of hardship we have a basic menu to fall back on. Eating Gorgonzola and drinking grappa and shaving with Proraso today vs going to Italy next year is just a wants tradeoff that we’re making, and choosing one over the other won’t touch our fixed expenses, nor our savings, and is therefore a trivial decision.

If we wanted to go to Italy, we could put aside a chunk of our wants money in targeted savings and 86 the grappa et. al; but since fixed expenses and savings have gone out the door first, I have no pressing need to start a “travel” category on a worksheet unless I’m just curious about it or something.

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Holly@ClubThrifty

It sounds like you found a strategy that works for you, and that’s all that matters. My misc. category doesn’t bother me at all (We allocate $200 per month to gas and miscellaneous). It usually gets spent on either a) grocery overages, b) birthday presents for birthdays I forgot about, or c) household items. Our spending is so boring these days!

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Kingston

YNAB has been an amazing, eye-opening tool for me to optimize within my broader needs/wants/savings categories. There is absolutely no need to use the default categories in YNAB, they are suggestions and easily changed. As someone on some other thread somewhere said, you could have a category for “hookers, beer and marijuana” if you wanted one (or 3 separate ones, if that works better for you). For me, the point is to see where the budget is leaky (money going out thoughtlessly, in ways that aren’t important to me or ways that may be working against my own personal goal of financial independence) and ultimately to plan ahead for spending rather than just tracking spending after the fact. I don’t know about Mint or Quicken (never used them), but to me, that is the beauty of YNAB — the planning ahead part. Best $60 I’ve ever spent in my life. It is possible to get it for more like $15 on sale from time to time. Also, YNAB is free for college students now. Fantastic forum and support at YNAB. Sorry to sound like an ad, but really, I have never been more satisfied with a product. (I do love Elizabeth Warren’s formula as well, I just have found being more granular to be helpful.)

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El Nerdo

@ Holly– yes, it works for me because it’s *much* more meaningful and less grueling, which is why I offer that it might work for your friend also. You might want to suggest she checks out “All Your Worth”.

The thing about that book is that it doesn’t begin by telling you to count your money, but rather it explains to you what kinds of money problems you have when your money is out of “balance” and tells you about different people in different scenarios, and then you’re saying “oh, yeah, that’s me!”

Then and only then, once you’re properly motivated, she says “go count your money”– and then you just round up the numbers. She is adamant against counting pennies because it’s ultimately unnecessary and, for many people, self-defeating.

While I get that certain people love the numbers and get a kick out of looking at spreadsheets, a great majority of people would rather poke their eyes with a cactus than keep a detailed tally of every penny (which is why businesses have accountants).

But that doesn’t mean one has to be irresponsible with money– it’s just that it’s much easier to be responsible with money by focusing on the “balance” instead of 10 or 20 or 30 arbitrary categories.

@ KIngston – right, but “beer, hookers and weed” could be “needs” or “wants” depending on context. If I was an alcoholic who didn’t have the capacity to quit drinking, I’d have to budget beer under needs or I’d get the DTs. If I was a patient on medical marijuana, same thing for weed budget. I’d have to really think about a medical need for hookers, but you get the idea– some things are essential, some things are optional.

My point with the categories is this: it’s nice to see what goes where, if one has a taste for accounting (ISTJ types come to mind), but what really matters for financial responsibility is a) paying debt/saving/investing at a good rate, and b) being able to cope with emergencies without incurring debt (keeping fixed expenses under 50%). All of the rest is merely optional. Cutting the budget pie into 3 easy pieces makes it non-depressing and accessible to pretty much everyone. Of course one can choose to go deeper than that, but that’d be more want than need, right? 🙂

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Carla

Hi Holly!

That is a good plan! I was taking each receipt and would have 5 different categories for them: food, cleaning supplies, personal care, non-essential foods (ie. chocolate, wine), “eating out” (salad bar), and the madness went on!

I think I want to delete my Mint account and start over since I made a huge mess out of it…

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PB

I pretty much agree with you. I have a very detailed budget, but after things are paid for the month, we give ourselves $ 100 a week for whatever, and we don’t track it. When we run out of money, we stop spending until Saturday and this works out fine.

One of my children is a VERY visual organizer and was having a terrible time with her finances and working out what should be paid when and how to manage the income from her three part time jobs. So we took a calendar and wrote in on that when each paycheck came in and how much it would be. Then we wrote in when each bill was due and how much it would be. Seeing it in terms of days made much more sense to her than a formal budget or tracking expenses – it located her money in space and time. Remaining funds could be spent or organized into future jars – another good tool for visual organizers. She is good at saving money as long as she can actually see it – if it is in an account, it doesn’t seem as real.

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KSK

That sounds like a great method that you developed for your daughter. I should use that myself!

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Johanna

Totally agree with all of this. If these people already know that their “must-haves” add up to a reasonable portion of their income, and that they’re running out of money each month, then it must be that they’re overspending on wants. What else are they going to learn from tracking their spending.

The thing is, finding out that you’re overspending on wants is actually GOOD news, because it’s relatively easy to get your financial house in order. You don’t have to move house, sell your car, get a new job, or declare bankruptcy. All you have to do is figure out how much you can actually afford to spend on wants, and when you’ve spent that much, stop spending.

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Jeff A.

I think the Needs, Wants, Savings categories are fine for determining your budget, but if you’re tracking expenses to determine where everything’s going, it’s helpful to have more detail (even if for just 30 or 60 days).

So if I’m trying to figure out how to reduce my Wants spending by 10%, it’s helpful to know where the most dramatic savings would come from. Do I need to cut back on all my entertainment subscription costs, do I need to cut back on my eating out, do I need to cut back on my clothing/waredrobe spending, etc.

But I agree that in general the less complicated you make it, the easier it is to stick to.

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Tonya

I agree to a point, but sometimes “needs” like groceries can be cut down dramatically. Seeing that you’re spending $1000 helps you realize that your groceries are not necessarily all “needs.” I think you should track for 30 days, figure out where you are on everything, and make adjustments. If you’re doing Ok with that, you can go to just wants/needs/savings categories.

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El Nerdo

Right Tonya, not all groceries are “needs”, which is why you pick a barebones survival figure (e.g., the USDA’s $200/person, or yours truly’s rice-and-bean-and-onions-diet of $100/person) and then anything above that amount is counted as a want. St. Elizabeth of the Cherokee Warrens explains that in her book (great, great book).

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Lori

Tracking our spending to the penny last August was life-changing. We started using YNAB, and our twenty-eight years of sorta-kinda-vaguely knowing what was happening with our finances ended right then and there. Now we know EXACTLY where we’ve been, where we are, and, Lord willing, where we’re headed. It was miserable to see how much money we were wasting, but you nailed it — accepting the call to action has been such a freeing and exhilarating experience. Our marriage is better, too, even though it was already terrific. THE ONLY THING BAD ABOUT GETTING CONTROL OF YOUR FINANCES IS THE VERY BEGINNING — it just gets better from there if you are willing to be honest and do the work.

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Tim

Yeah, this is why Quicken or a similar program is such a no-brainer. It doesn’t give me a choice to track spending, it’s all there, plus it allows me to see “budget-creep” from month to month or year to year for a growing grocery or entertainment bill.

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Phil

I started tracking finances when I finished school and started a full-time job in 2005. I had just bought a house with 0% down (so two mortgages) and started student loan payments, so I bought Quicken and it helped get things in order.

I was able to draw a picture and target any problem areas. Since then I’ve switched to Mint and pay most things with a credit card so it’s easier to track.

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Brian @ Debt Discipline

It’s an eye opener when you first start tracking. You realize those little things like lunch out or dinner can really add up.

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CandiRisk

I was tracking my spending (I use YNAB), but then I moved to a new state while not being able to sell my old house. I fell off the tracking system because I became overwhelmed and now–wow–everything is out of kilter again. I have just now started tracking again and it’s helping, but I can see why someone would want to run away from it, especially if the picture ain’t pretty.

Thanks for this post, I will come back to it often when I feel myself slipping off the track (HA).

Tracking your spending needs to be like brushing your teeth–you just do it. Often. And you don’t give up when your teeth are clean.

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Mrs. PoP

We use mint (and have since it first came out), and as friends have seen me check it on my phone from time to time, they’ve asked me about it and some have even tried it themselves.

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Jake and Allie

Tracking is the only way to know where your money is going. We are actually a participant in “Naked With Cash” on another blog and are one of 4 groups that are tracking our money each month online. We are trying to retire soon and are using this to help us figure out how much we are spending per month and if our retirement fund will match our spending habits.

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Amy

I feel for your friend, because tracking spending, which strips away all excuses, as you said, can be very frightening. But you’re so right that it’s also freeing. Once you confront the cold hard numbers, you can move forward (or choose not to). Knowledge is power!

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Nick

I use Quicken Intuit to track my money. Knowing where every cent goes helps me to have better control over my money.

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Stefanie @ The Broke and Beautiful Life

Tracking spending is the first step to making a change in your financial life, and as we know, the first step is the hardest. It’s like any change. We know what we should do, but there has to be a moment where we commit and follow through.

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MoneyAhoy

Stefanie,

I agree – many folks are really surprised just how much they spend in certain areas because they go un-tracked. I myself was surprised at just how much we’re spending on daycare when I stepped back to total everything up!

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